Day 1 - Value Function Iteration
Goals
The goals for this day are to numerically solve the model and understand how it works, using the numerical techniques covered by Stephen Terry.
Deliverables
- Plot the value function against the state variables. What is the intuition?
- Plot the policy function against the state variables. What is the intuition?
- How do the two plots above change with the values of \(\alpha\) and \(\delta\)?
- Write a subroutine that takes the model’s solution and parameters as inputs, then produces a simulated data set as output.
- Use the Tauchen (1986) method to discretize the state space.